Feds Tell States to Stop Picking on Tesla

Federal regulators want auto dealers and state lawmakers to play nice with Tesla.

The California-based car manufacturer prides itself on sleek showrooms and white-glove service to sell its electric sports cars, which start at $70,000.

But Tesla's practice of selling its electric vehicles directly to consumers has made the young carmaker unpopular with auto dealers, who say the company is violating many local and state franchise laws meant to encourage competition.

Senior officials at the Federal Trade Commission disagree, saying in a blog post Thursday that these laws are bad for consumers and competition. Consumer choice about where to shop is just as important as what to buy, according to the post.

"We hope lawmakers will recognize efforts by auto dealers and others to bar new sources of competition for what they are—expressions of a lack of confidence in the competitive process that can only make consumers worse off," Andy Gavil, director of the Office of Policy Planning; Debbie Feinstein, director of the Bureau of Competition; and Marty Gaynor, director of the Bureau of Economics at the FTC, wrote in the blog post, noting that the opinion represented their views and not necessarily the commission's.

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They also point out that Tesla is hardly a threat–only 22,000 of the 15 million cars sold in the U.S. in 2013 were Teslas, according to the post.

The franchise system of independently owned and operated car dealerships dates back to the automobile's early years, when auto manufacturers used independent dealers to jump-start sales around the country. As the automobile industry matured, states adopted laws to protect dealers from "abusive practices" by manufacturers.

But these laws have become "protectionist" instead of "protecting," according to the FTC officials.

This feud between Tesla and automobile salesmen came to a head last month when New Jersey's Motor Vehicle's Commission adopted a new regulation that requires every car dealership to operate as a franchise, effectively blocking the Tesla sales in the state.

"The rationale given for the regulation change that requires auto companies to sell through dealers is that it ensures 'consumer protection,' " Tesla CEO Elon Musk wrote in response to New Jersey's move. "If you believe this, Gov. Christie has a bridge closure he wants to sell you!"

Tesla is appealing New Jersey's ban, and direct sales of Tesla are blocked in a handfull of other states, including Arizona and Texas.